What is a reverse mortgage ?

Mortgages have assumed a number of characters from the time of their inception. The traditional

Hot Topics

What is Critical illness Insurance?: Critical Illness Insurance pays an lump sum if you are diagnosed with a serious illness or critical illness.
What is Terminal Illness Insurance?: Terminal Illness Insurance pays out if you are diagnosed with an illness from which you are expected to die within 12 months of diagnosis.
How does my age affect my life insurance premium?: Age is one of the most influencing variables that affect the premium for any given form of life insurance policy.
Life Insurance laws in Scotland: The Law relating to Life Insurance and Life Assurance is the same in Scotland as the rest of the UK. This has been the case since 2001.

mortgages used to be of the repayment type. Every month the mortgagor used to pay a certain amount towards both principal and interest. Sensing the hardships that people have to face in making these payments, mortgage providers came up with interest only mortgages. But the present day customer is more pampered. He needs a mortgage where he enjoys the cash, but is not required to pay a penny towards the repayment.

A reverse mortgage is a perfect solution to such requirements. It allows a homeowner to plough the equity in his home to get cash. While the borrower enjoys cash on the mortgage, he is rid of any monthly payments.

The amount of loan received on the reverse mortgage will depend on the age of the borrower and the value of the home. The borrower has no obligation to repay the loan as long as he continues to reside in the house or as long as he survives.

To understand the reverse mortgage, it will be beneficial to compare it with forward mortgages. The forward mortgages are the traditional mortgages. These require a monthly ( cheap life insurance ) payment either towards both principal and interest, or only towards the interest. This way the forward mortgage is repaid at the end of the repayment period.

However, reverse mortgage works opposite to the forward mortgage (hence the name). The lender advances money to the customer, for which he receives no payment. This means that the debt goes on increasing. Simultaneously the equity in home decreases. This is a rising debt and falling equity scenario. The amount of debt can never increase the value of the home. Thus, the mortgage provider, at the time of repayment, can only lay claim on the ( life insurance ) home.

Page 2